VC activity tops $200 billion mark — each new day is a record

While activity dropped slightly from Q2, the bull market in venture capital funding continued to run, not walk in Q3.

In brief

• During times of disruption and economic volatility we historically see a significant uptick in new company formation.
• Mega deals play a major role in the current VC market, driving a significant amount of activity.
• We continue to see a significant growth in unicorn companies.

While activity dropped slightly from the previous record quarter — from $74.4 billion to $73.6 billion — the bull market in venture capital (VC) funding continued to run, not walk, in Q3 2021, surpassing the $200 billion mark for the year for the first time ever.

This shatters the previous annual record of $158 billion set in 2020 and also marks three successive quarters in excess of $65 billion. In fact, since 2018, venture capitalists have invested more than $650 billion into startups in the US.

Dollars invested into seed round financings were off 8% quarter on quarter. That is compared to a record Q2; however, in each quarter of 2021 more than $2 billion has flowed into seed round financings. This is a healthy trend and signals that entrepreneurs are seizing opportunities they see created by the disruption we have experienced due to the pandemic. During times of disruption and economic volatility we historically see a significant uptick in new company formation. 

Looking at other stages of investment, series A dollars were off 13% while series B rounds were up nearly 10% as were later stage rounds. I see this as another healthy sign that companies are progressing through the venture pipeline, and we can expect to see ebbs and flows of capital along the various stages of investment. 

If we compare results to a year ago, we see that seed deals are up 28% — series A increased 122%, series B increased 140% and later stage rounds are up nearly 110%. What a difference a year makes.

Later stage deals continue to drive significant dollar volume of investment. We have seen three successive quarters of later stage investments higher than $30 billion. Year to date, we have surpassed $100 billion in later stage deals and are on pace to double 2020.

Mega deals play a major role in the current VC market, driving a significant amount of activity. In Q3, there were nearly 200 mega deals that raised $100 million or more — for a total of $43 billion. In fact, 5 of the top 10 deals raised a billion dollars or more in Q3, which is a record-breaking number of billion-dollar deals in a single quarter. In total, we have seen 11 billion-dollar deals so far in 2021, and the market has raised more than $127 billion through mega rounds, which accounts for nearly 60% of overall VC investment. We don’t see this dropping off anytime soon.

We also continue to see significant growth in unicorn companies. As of June 30, we counted more than 400 unicorns valued at $1 billion or more. All signs point to 2021 as another record year of unicorn creation.

The amount of available capital will continue to drive the buoyancy and exuberance of these opportunities, and many companies are achieving this status quickly. Several companies have increased their valuations from $150 million to $1 billion in just a few years.

Record-breaking year continues

All in all, this has been a record year for fund formation and deployment. This is an amazing situation to be in when you consider that we’re still emerging from a global pandemic. No matter what happens in Q4, we can say with confidence that the VC ecosystem has learned how to raise and invest money in a virtual environment.

As we look ahead, with all the capital still available and compelling themes ready to be backed, investors will continue to deploy capital at a fast pace. Given all the disruption and technological evolution now, we see this continuing for the foreseeable future.

The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

Numbers included are from EY analysis and based on Crunchbase data unless noted otherwise.

*We include equity financings into VC-backed companies headquartered in the US. Sources of cash investments include, but are not limited to, VC firms, corporate investors, other private equity firms, and individuals.

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